India looks cuts out middlemen on gold trading

Gold has long had a special attraction for Indians. Loaded with cultural and religious significance, it is considered an auspicious metal and a visible sign of wealth and prosperity.

But trading in the sought-after commodity is now changing, as one company looks to secure a better deal for the millions of ordinary Indians who buy and sell the precious yellow metal for weddings and annual festivals.

National Spot Exchange Ltd, controlled by markets firm Financial Technologies India Ltd, has set up a new electronic system that looks to guarantee gold bullion prices and quality.

“What we’re trying to do is to create a market so that Indians can sell gold by way of converting into gold bars or gold coins and sell it on,” said National Spot Exchange’s managing director and chief executive Anjani Sinha.

“At a spot exchange we can fix their price, quote the price and it’s guaranteed by supply and demand. They can quote their buying price and their selling price,” he said at the company’s offices in suburban north Mumbai.

India is the world’s biggest consumer of gold, importing between 700 tonnes and 800 tonnes of the metal every year or 20 percent of global demand.

The country’s gold imports have slowed in recent months due to the world economic downturn, which has pushed up prices as investors seek a safe haven from the financial uncertainty.

In January, the peak of the lavish wedding and gift-giving season, India imported only 1.8 tonnes of gold, down from 14 tonnes in the first month of last year.

In April, the Bombay Bullion Association said that — for the first time in more than a decade — there were no imports at all in February and March.

Even so, Indian households are still believed to have a massive 20,000 tonnes to 25,000 tonnes of gold stashed away.

But while a market exists for imported bullion, there is no mechanism for the resale of gold jewelry and its conversion back into bars once it enters the domestic market.

As a result, ordinary Indians are forced to use merchants who commonly charge a hefty commission to melt down their gold jewelry and sell it on at a premium.

Introducing a more standardized, transparent market will cut out the middleman and be beneficial for both the consumer and the Indian economy as a whole, Sinha said.

“This market has been created basically for dealing in quality, certified standard gold,” he said.

“The consumer is more in control and not dependent on somebody else when he goes to a jewelry merchant where you can’t quote your own selling price,” he said.

Daily prices are linked to those at the London Bullion Market. On its first day on May 30, the spot exchange in India’s financial capital traded about 50kg of gold.

Selling prices were in the region of 14,450 rupees (US$302) per 10g on Friday.

To guarantee quality, the exchange, in conjunction with the Indian Bullion Markets Association, is auditing refineries that melt down jewelry into international standard “995” purity, meaning it is 995/1,000 parts pure gold. Four refineries — two in Mumbai and two in Ahmedabad, in nearby Gujarat state — have already been approved. It is hoped to have 15 approved refineries by the end of the year.